Correlation Between BW Offshore and BW Energy

Can any of the company-specific risk be diversified away by investing in both BW Offshore and BW Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BW Offshore and BW Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BW Offshore and BW Energy, you can compare the effects of market volatilities on BW Offshore and BW Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BW Offshore with a short position of BW Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BW Offshore and BW Energy.

Diversification Opportunities for BW Offshore and BW Energy

0.37

Correlation Coefficient

BW Offshore  BW Energy

Weak diversification

The 3 months correlation between BWO and BWE is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding BW Offshore and BW Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW Energy and BW Offshore is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BW Offshore are associated (or correlated) with BW Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW Energy has no effect on the direction of BW Offshore i.e., BW Offshore and BW Energy go up and down completely randomly.

Pair Corralation between BW Offshore and BW Energy

Assuming the 90 days trading horizon BW Offshore is expected to generate 5.09 times less return on investment than BW Energy. But when comparing it to its historical volatility, BW Offshore is 1.23 times less risky than BW Energy. It trades about 0.05 of its potential returns per unit of risk. BW Energy is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,355  in BW Energy on December 28, 2024 and sell it today you would earn a total of  775.00  from holding BW Energy or generate 32.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BW Offshore  vs.  BW Energy

BW Offshore

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BW Offshore are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, BW Offshore is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

BW Energy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BW Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting technical and fundamental indicators, BW Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BW Offshore and BW Energy

The main advantage of trading using opposite BW Offshore and BW Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BW Offshore position performs unexpectedly, BW Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BW Energy will offset losses from the drop in BW Energy's long position.

The idea behind BW Offshore and BW Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.